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But the public relations debacle has reopened lines of attack for critics of Washington bailouts and the tax breaks AIG has received. It has also upset other banking and insurance industry players who have worked hard to move beyond the financial crisis and repair relationships on Capitol Hill.

Sen. Jeff Merkley, a member of the Senate Banking Committee, was one of the many members of Congress to express outrage at AIG’s consideration of joining the suit.

“It shows that some of the former masters of the universe — those who were bringing this idea forward — have no shame,” the Oregon Democrat said.

The insurer considered and ultimately decided not to join a lawsuit against the U.S. government over the terms of the bailout.

The blowback to even the notion of suing the government was fierce and was a setback not only for AIG but also for other firms trying to restore Wall Street’s reputation with regulators and lawmakers.

“Other banks and financial institutions aren’t pleased,” one industry lobbyist said of the AIG kerfuffle.

Bruce Haynes, who advised BP after the 2010 oil spill and specializes in corporate reputation campaigns, said he believes AIG can eventually recover if the firm demonstrates unfailing consistency in its gratitude to the taxpayers.

But distancing itself from the recent scandal could take a long time.

“How much longer are we going to talk about the bailouts? If other companies have problems — GM for instance — AIG’s going to get dragged into some of those stories as a guilt-by-association thing,” Haynes said. “You’re not going to have a bailout story that doesn’t have AIG in it.”

The lawsuit dustup came after the Treasury Department just last month sold its remaining shares in the company and AIG began running “Thank You America” commercials and advertisements.

The timing wasn’t lost on lawmakers.

“They’re saying in an ad campaign, ‘Thank you.’ And then they’re saying, ‘But you know what? The lifeline should have been woven out of gold, not nylon. And that’s outrageous,” Merkley told POLITICO.

Republican PR consultant Ron Bonjean said the lawsuit “basically took the millions of dollars they put toward advertising and thanking the American people for bailing them out and threw it in the trash.”

“It has created a negative effect out there in America and will likely affect their operations on Capitol Hill,” Bonjean said.